For the first time in 55 years, Berkshire will have a new CEO at its helm.
Berkshire’s open structure should succeed under capable management.
However, the way it generates shareholder value could be significantly different.
10 stocks we like better than Berkshire Hathaway ›
As Warren Buffett is days away from ending his brilliant 55-year tenure as CEO of Berkshire Hathaway(NYSE:BRK.A)(NYSE:BRK.B) and passing the torch to Greg Abel, most investors naturally have questions. What does this change mean for Berkshire’s future, and what could it mean for the company’s stock?
Answer: No one really knows for sure. There are, however, reasonable and informed probabilities, most of which can be placed into one of two categories. There is the qualitative change in the way this complex conglomerate is run. And here are the results quantitative changes that will have a direct impact on shareholder value and performance.
Here’s a closer look at the most likely differences we’ll clearly see in the two categories over the next five years.
If you know anything about Warren Buffett, you almost certainly know that he’s a fan of simple, direct-to-consumer corporate value stocks. Coca-Cola is a leading Berkshire holding company, for example. Conversely, Buffett has never been a big fan of tech stocks, explaining that he doesn’t like owning companies he doesn’t understand.
New CEO Greg Abel might feel differently, however. In fact, even with Buffett still at the helm, Berkshire Hathaway recently forged its way into the tech space by taking a stake in Alphabet And Amazon – positions that would have been unthinkable just a few years ago.
The conglomerate isn’t going to be taking flyers on hyper-aggressive tech names anytime soon. But don’t be surprised to see more exposure to some of the most stable tech companies on the market.
Image source: The Motley Fool.
That said, also don’t be surprised to see individual stocks decline in the near future in favor of more private companies. Berkshire Hathaway’s stock picks are dissected regularly. But those stock positions represent only about a third of Berkshire’s total value.
Another third are private companies like BNSF railroad, Geico Insurance, Duracell batteries, Shaw flooring company, Pilot Travel Centers, etc. They are reliable cash cows, even if they are not the most powerful growth engine. And in an environment where stock valuations could remain at high levels for an indefinite period, Abel and his team may have no choice but to look for opportunities outside of the publicly traded equity market.
Finally, while Buffett has let all the heads of Berkshire’s various businesses operate without any interference from Buffett himself, Greg Abel should take a more involved and less hands-off approach.
None of these changes make Berkshire Hathaway better or worse. Just different. Nevertheless, reasonable predictions about the impact on shareholders can be made.
So what could all these likely changes mean in practical terms for current and potential shareholders over the next five years? Take such predictions with a grain of salt BIG grain of salt.
According to the latest analysis, Berkshire Hathaway’s market value was $1.1 billion. Even if he did it differently, assuming Abel maintains Buffett’s overall track record of success (which is a reasonable assumption), Berkshire’s market cap could reach $2 trillion by the end of 2030. That represents an average annualized gain of just over 12% per year, more or less in line with the stock’s long-term average.
There’s something else shareholders are likely to start seeing from Berkshire over the next five years. In fact, we’re already seeing a bit of it, if Buffett’s hesitance to deploy $382 billion in idle cash is anything to go by. This is slower growth, driven by a combination of financially constrained consumers and Berkshire’s sheer size.
As Buffett himself warned in his farewell letter to shareholders last month, “because of Berkshire’s size and market levels, ideas are few and far between,” although he adds, “but not zero.” However, just to manage investor expectations, he goes on to point out that “our size has detrimental consequences”.
Finally, to that end, even though Berkshire Hathaway has never paid dividends during Buffett’s tenure and rarely repurchases much of its own outstanding shares (and hasn’t repurchased any shares since early last year), don’t be surprised if dividends and repurchases become a reliable part of the company’s total shareholder return.
It’s not a major item, mind you. But it is at least the one that provides the most value from any cash flows likely to flow if and when the conglomerate continues to move away from growth equity investments and toward more private, cash-generating businesses.
Of course, the overarching question remains. Is Berkshire a buy in these somewhat uncertain times? Yes it is.
It will be different than before, that’s for sure. Not only did Buffett have an uncanny instinct for knowing which stocks were truly undervalued, but and whenbut his presence added a touch of magic to the affair. Greg Abel has big responsibilities to fulfill, and he’s going to do it differently than Buffett.
However, despite all the looming differences described above, in five years Berkshire will look even more like it does today than it would otherwise. Indeed, it will remain above all an incredibly lucrative insurance sector.
As Buffett himself made clear in his 2009 letter to Berkshire shareholders: “This collect-now-pay-later model [insurance] leaves us holding large sums of money – money we call “float” – that will eventually go to others. Meanwhile, we can invest this float for the benefit of Berkshire… This combination allows us to take advantage of the free money – and, better yet, get paid to hold it. »
Any changes from now on will therefore ultimately only be minor adjustments to the way this insurance business operates. Greg Abel fully understands that this arrangement is the key to the company’s magnificent long-term performance.
Before buying Berkshire Hathaway stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Berkshire Hathaway wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Netflix made this list on December 17, 2004…if you had invested $1,000 at the time of our recommendation, you would have $509,039!* Or when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $1,109,506!*
Now it’s worth noting Equity Advisor the total average return is 972% — an overwhelming market outperformance compared to the 193% for the S&P 500. Don’t miss the latest top 10, available with Equity Advisorand join an investor community built by individual investors for individual investors.
See the 10 values »
*Stock Advisor returns December 15, 2025
James Brumley holds positions at Alphabet and Coca-Cola. The Motley Fool holds positions and recommends Alphabet, Amazon and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Where will Berkshire Hathaway be in 5 years? was originally published by The Motley Fool
